Technitrol Reports Q201 Results
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PHILADELPHIA--(BUSINESS WIRE)--July 23, 2001--Technitrol, Inc. (NYSE:TNL) reported net earnings of $2.2 million, or $.07 per diluted share, before restructuring charges and inventory write-downs, for its second fiscal quarter ended June 29, 2001, compared with $24.9 million, or $.76 per diluted share, in the second quarter of 2000.
Including after-tax charges of $2.2 million, or $.07 per share, for severance and the closing of a facility in Thailand and an after-tax provision of $1.4 million, or $.04 per share, for slow-moving inventory, both related to the precipitous downturn in markets served by the Electronic Components Segment (ECS) that began late in 2000, the company lost $1.5 million, or $.04 per diluted share.
Per-share results reflect the two-for-one stock split that became effective November 27, 2000.
Consolidated second-quarter revenues were $112.8 million, down from $163.2 million in the same period last year, due almost entirely to continued very weak ECS markets and, to a lesser extent, continued softening North American demand in the Electrical Contact Products Segment (ECPS).
Earnings before interest, taxes, depreciation and amortization (EBITDA, defined as operating profit plus depreciation and amortization) were $3.4 million in the second quarter of 2001. Excluding the restructuring charges and inventory write-downs noted above, EBITDA for the quarter was $8.2 million.
``We were cash flow positive in the second quarter - a noteworthy achievement given the very tough conditions we face in our markets,'' said Technitrol Chairman and Chief Executive Officer James M. Papada, III. ``In 2001, the convergence of several external forces - a slowing economy, capital spending cuts and huge amounts of unsold customer inventories - has produced the business equivalent of the `perfect storm' and all of the perils that accompany it. Under these circumstances, over which we have virtually no control, the best we can do is to continue to reduce costs, spend capital dollars for only essential items and concentrate on cash generation.
``Through the second quarter, we worked very hard to consolidate operations, reduce employment levels, minimize our capital requirements and eliminate all but mission-critical expenses,'' Papada said. ``Our goal is to maximize our strong net cash position, which, together with the new $225 million global credit facility we finalized in June, will be instrumental to our strategic acquisition and business development programs. All of these moves will enhance continued profitable growth when - and we emphasize when, not if - our markets recover and we return to a normal growth cycle.''
Electronic Components Segment
Second-quarter ECS sales were $55.7 million, compared with $104.9 million in the second quarter of 2000. Excluding non-recurring severance and plant closing charges and significantly larger-than-normal inventory write-downs, the segment's operating loss was $0.5 million, reflecting low overhead absorption associated with very low revenues, production inefficiencies and order cancellation settlements at little or no margin.
``Consistent with the universal public statements of our ECS customers, competitors and peer companies, demand continues to be at best anemic across Pulse's legacy markets - networking, telecommunications and power conversion,'' Papada said. ``The downturn is most prominent in North America, but it has significantly affected Europe and Asia as well. We now believe that we are at or close to the bottom of this cycle, but because our customers have stopped providing forecasts beyond the very near term, we are unable to foretell the timing or speed of the eventual recovery.
``Equipment suppliers continue to work off massive inventories,'' Papada said. ``And so, we expect ECS business volumes to decline modestly for another quarter. However, order cancellations have declined significantly in recent weeks, and there appear to be fresh signs of life on the part of several of our customers.
``The bright spot continues to be new-product development activity,'' Papada said. ``Year to date, Pulse has accumulated 1,300 design wins, well ahead of its record pace in 2000. We continue to stay close to customers and their technologies so that when markets recover, we're designed into as many cutting-edge products as possible.
``Several of these designs are for automotive applications, including technology associated with the 42-volt battery system.'' Papada said. ``Our recent acquisition of Grupo ECM is the cornerstone in our effort to build leadership in the growing automotive magnetics market and diversify Pulse's customer base.
``As we extend our capabilities into new markets, we remain focused on maximizing cash flow in our legacy business,'' Papada said. ``In the second quarter, Pulse's ongoing plant consolidations, rolling shutdowns, employee furloughs, additional reductions in force and across-the-board spending cuts resulted in significant expense savings. We continued to improve our cost structure, closing our facility in Thailand and reducing Pulse employment levels 50% since the end of the first quarter. Wage and benefit expense reductions alone - before factoring in increased efficiencies, lower overhead, better capacity utilization and the like -- resulting from this latest restructuring amount to about $5 million a year. Additional plant consolidations are currently under review. The end-result, hopefully, will be optimal operating efficiency when business activity recovers.
``Despite an uncertain near-term outlook, we are confident that Pulse's primary markets are attractive long-term growth propositions,'' Papada said.
Electrical Contact Products Segment
In the ECPS, revenues were $57.2 million, compared with $58.3 million in the second quarter of 2000. Sales were affected by very weak North American markets, particularly machine tools and commercial/industrial controls, and an average Euro-to-dollar exchange rate 6.9% lower in the 2001 quarter than in 2000.
These factors more than offset added revenues from the operations of Engelhard-CLAL, acquired in early 2001. Had average exchange rates in the second quarter of 2000 been in effect in the 2001 quarter, ECPS revenues would have been $60.2 million.
``The North American manufacturing sector weakened continuously throughout the quarter as customers curtailed capital spending and sold out of existing, bloated inventories,'' Papada said. ``On the other hand, construction markets were stable, with some softening on the residential side, offset by strength in non-residential building. However, customer inventories in this sector began the year at two-year highs, resulting in little demand for our products.
``Demand in both the North American and European appliance markets reflected the slight weakening in residential construction,'' Papada said. ``Global automotive markets remained strong, as increasing electrical content offset lower vehicle production levels. ECPS sales were solid overall in Europe, driven by strength in the commercial/industrial controls and consumer durable goods sectors and modest growth in construction, particularly non-residential.''
Second-quarter 2001 ECPS operating profit declined to $2.5 million from $3.5 million a year ago, due to much lower capacity utilization in North America.
``AMI Doduco is using the North American slowdown as an opportunity to improve operating efficiencies across the board,'' Papada said. ``We reduced head count in several locations and are moving ahead with plans to consolidate our seven North American plant locations into five by the end of the year. This will result in better utilization in our remaining facilities and a much-improved cost position. The slowdown also gives us the opportunity to more quickly complete the optimization of our material requirements and enterprise resource planning (MRP/ERP) system, and to implement the many process efficiencies these tools bring to the table.
``In Europe, we are consolidating all milling and contact pre-material production into our Pforzheim, Germany facility in order to increase capacity utilization to its maximum, and we will further consolidate our Spanish, Italian and French rivet and stamping operations,'' Papada said. ``AMI Doduco continues to implement rigorous expense reductions and rolling plant shutdowns in North America to further improve cost performance. We have begun to place significant emphasis on MRP/ERP utilization at our German locations, and we will roll these systems out in Spain, Italy and France this year. Truth be told, we have also not done as good a job with the Engelhard-CLAL integration effort as we should have; but we recognize this and we have taken aggressive steps to get back to where we need to be as quickly as possible.
``We're continuing our efforts to expand the component subassembly business,'' Papada said. ``Demand for these products remains strong, and AMI Doduco is engaged in a high level of design activity in Europe. The plan to replicate these capabilities in North America is in place, and we are beginning to execute on it.'' |
